Kia First Quarter Profit Down 35% image

Kia reported first quarter profit down 35% on strong won and a drop in domestic factories’ production.

Net income was down to 783.9 billion won ($707 million), from 1.2 trillion won in 2012, lower than analysts’ estimations of 836 billion won, and revenue dropped 6%. Operating profit was down 35% to 704.2 billion won, lower than the analysts’ estimations of 707 billion won.

Still, CFO Park Han Woo predicts sales in the second quarter will be higher compared with the first. Both Kia and affiliate Hyundai reported drops as labor concessions in their home market shackle production and the won increased 25% against the yen.

In March, Kia and Hyundai ended overnight shifts, therefore reducing working hours at their South Korean plants, causing a drop in exports of 11% in the first quarter and 11% in March alone.

“A new shift system has cut the company’s production at its domestic plants, and on top of that, only one of its three plants in South Korea have agreed on terms for weekend overtime,” Lee Sang Hyun, an analyst at NH Investment & Securities Co. said. “With added pressure from competitors armed with the weakening yen, and a lack of new models, the company struggled last quarter.”

Kia predicts sales this year will increase 1.3% to 2.75 million units and Hyundai and Kia combined sales are to increase 4.1% to 7.41 million units, the lowest level in the past seven years. During the first quarter Kia sales in the States fell 8.1%, as deliveries for its Soul wagon dropped 11% and the Forte compact was down 17%. In Europe sales increased 5.4%, thanks to deliveries for the Sportage SUV and the Cee’d hatchback. In China sales were up 26% to 137,567 vehicles, with the Sportage up 39% and the K2 small sedan up 17%.

Kia announced it does not plan to build any new plant in the near term, after a South Korean newspaper said that the automaker might build a plant in the US by 2014. Kia denied this report but said it is considering the possibility of expanding capacity.

“We feel the need (for more capacity) … But we have no plan to expand production capacity for now,” Park Han-woo. “Instead, we will focus more on quality and consumer satisfaction.”

Source: Bloomberg